A Walk Through an Electrical Distributor

New to the electrical market and unfamiliar with how electrical distributors operate? This excerpt from The Electrical Marketer's Survival Guide will introduce you to the "average" electrical distributor.

The basic role of an electrical distributor really has changed very little over the years. Electrical distributors have survived manufacturers' mergers and acquisitions, new product technology, alternate channels and numerous threats to their livelihoods by concentrating on their basic function: Getting the right products to the right customers, at the right time, in the right quantities, at the right price. Easier said than done, but if a distributor accomplishes this mission consistently, the company will satisfy its customers. To fulfill these functions in the market, electrical distributors focus on the following core services:

Local warehousing of thousands of products from several hundred manufacturers. In a strict business sense, a distributor's key role is to “break bulk” — to receive goods in large quantities, then to deliver them in order sizes and mixes as customers need them. If the electrical distributor didn't perform this role, customers would have to deal with each manufacturer one-by-one and find the space to warehouse products. Providing a local source of supply also helps manufacturers, because electrical distributors anticipate customer demand for products and order accordingly, helping manufacturers keep their inventory down.

Daily and emergency delivery of these products. Today's electrical distributors face competition from alternate channels such as home centers, “virtual distributors” on the Internet, catalog houses and direct sales that give distributors' customers new choices in sources of supply. While these competitors nibble away at a distributor's sales, none offers as convenient, in-depth local stock and as wide a variety of delivery options. Customers can pick up the product at a distributor's “will call” counter, or have it delivered to the job site. They can ask the distributor to arrange for it to come direct from the manufacturer (drop shipped) or ask for it to ship with an overnight-delivery service.

In contrast, the alternate channels may not offer immediate delivery. Some focus only on a few products. Others have no local presence in the market. The local touch and immediate response are two huge advantages that electrical distributors offer their customers. For instance, when a customer's manufacturing line goes down on the third shift at 3 a.m. because of a burned-out starter, or when a contractor needs a couple dozen wallplates or lighting-fixture louvers to finish off a job, they typically call an electrical distributor to bail them out, not some catalog company a thousand miles away that can't offer an immediate solution to the problem.

If distributors didn't provide daily delivery, customers would have to spend more time picking up products from different sources of supply, increasing the amount of time workers spend away from job sites and driving up job costs. Providing local delivery also helps manufacturers, because they get a single receiving point for shipments, instead of having to make small individual deliveries to each end user.

Extending credit for the purchase of supplies. Where else can a customer order a truckload of products from dozens of different manufacturers, have all of the necessary invoicing on one bill and then get extended credit terms? What a deal! In addition to providing customers with the convenience of credit, electrical distributors decrease financial risk for manufacturers. When a distributor purchases in quantity from the manufacturer and pays promptly, that cuts the risk of selling products into end-user markets for manufacturers.

Offering information and training. Nowhere else in the market but at an electrical distributor can a buyer find one source of so much information about such a variety of products. Customers can visit a manufacturer's Web site, but the electrical distributor still provides the human touch — and a one-stop source for technical, application, pricing and availability information about hundreds of different manufacturers' products.

Distributors also provide customers with a central source for a variety of market information — new projects coming on line, personnel changes in the area, new local code requirements, etc. An electrical distributor's knowledge works in two ways — what he learns from manufacturers he passes along to customers and what he learns about customers' requirements he feeds back to manufacturers.

A Walk Through an Electrical Distributor

Let's take a look at the most common job functions at a typical electrical supply house.

You will meet counter workers first when you walk through the door of the typical electrical distributor. A distributor's counter workers often spend more time with customers than any other employee, and in this role they influence customers' buying decisions.

A counter worker's job compares in many ways to that of the sales clerk at your favorite hardware store. You probably go to the hardware store when you want to solve a problem on your “honey-do” list and then move onto something more entertaining. When you find the solution that you need by yourself, the sales clerk simply rings you up. But he or she can answer questions or give advice on which product will do the job for you, if you need it.

Counter workers do pretty much the same thing in the electrical market. Much of the time their customers know exactly what they need. But when a customer has a question or problem, good counter workers know how to listen to the problem, size up the situation and make a recommendation on the product that will do the job. That requires an encyclopedia-like knowledge of which manufacturer's products will work in an application or can be substituted for another vendor's product; the new products on the market that may fit the bill; and a ton of other product- and application-specific information regarding the product lines that the company stocks.

These employees also check stock, availability and pricing of products, as well as pull orders from the warehouse. Counter workers may also maintain point-of-purchase (POP) displays in the counter area. Counter areas vary in size. Modern counter areas loaded with point-of-purchase merchandising displays and demonstration areas can easily be several thousand square feet, but conventional counter areas with basic shelving and traditional walk-up counters are usually no more than several hundred square feet. When Grainger Inc., Lake Forest, Ill., embarked on a major branch expansion campaign in 2004, it added thousands of square feet of display space in its counter areas. For instance, its 25,500-square-foot branch in Lenexa, Kan., has 2,500 square feet of counter space, compared to 700 square feet in the old branch. For more information on Grainger's branch expansion campaign, type “grainger's new growth” in the search engine at www.ewweb.com.

Never more than a few steps from the counter area is the warehouse, stocked with up to 10,000 to 15,000 stock-keeping units (SKUs) from 100 to 300 different manufacturers. Warehouse workers check stock in at the receiving dock, put it away and stage orders.

A common stop along the road to sales and management for many distributor employees, this job gives employees a good feel for the flow of products through the company, where they are stored, and the company's procedures for shipping or filling orders. This part of a warehouse worker's job hasn't changed much over the years, but bar-coding has changed the job descriptions of warehouse workers. Instead of enduring laborious cycle counts, where warehouse workers have to manually hand count all products in the warehouse, bar coding enables them to use a bar-code reader to simply scan a label on the product or bin location and then enter the number of products. Some electrical distributors are getting into some more sophisticated warehousing systems. If you want to learn more about what's coming, type “the ABCs of warehouse technology” into the search engine at www.ewweb.com. Electrical Wholesaling Contributing Author Dick Friedman provided a nice overview of the latest in warehouse technology in the magazine's December 2008 issue, and writes frequently on the subject for the publication. Check out some of his other articles on warehousing while you're there.

Distributors' warehouses will differ depending on the warehousing system they use. Larger distributors may employ a “hub-and-spoke” warehousing network where a larger warehouse (called a central distribution center (CDC) or a regional distribution center (RDC)), often 100,000-square-feet or more, feeds a network of smaller branches, usually less than 10,000 square feet to 12,000 square feet. With the hub-and-spoke concept, the faster-moving “A” items are maintained at the local branch level and the RDC/CDC often warehouses the less frequently ordered items. The branches order “B,” “C,” and “D” items from the central facility on an as-needed basis.

Despite the popularity of the hub-and-spoke system with larger distributors, it's still more common for distributors to maintain complete stock at each branch and have manufacturers ship directly to those locations.

At the loading dock where the day's outbound orders get staged for delivery you will meet the truck drivers. These distributor employees carry a heavy load in addition to the product in back of a truck: They personify the company slogans many distributors use to promote themselves like “Dependable service guaranteed,” or “What you need when you want it.” But if truck drivers cannot live up to the delivery promises that their companies make, if they deliver products damaged in shipment, if they are rude or habitually late with deliveries, they can quickly destroy their companies' reputations as dependable sources of supply.

Many distributors use a truck driver position as a rung on the ladder that an employee must climb to make it to sales or management. They want their employees to learn how to get to customers' facilities, how they like their products delivered or packaged and the importance of prompt delivery.

Like counter workers, truck drivers spend quite a bit of time with customers, and they have a tremendous influence on the customer's impression of a distributor. Late or incomplete deliveries, surly behavior and sloppy packaging can destroy a distributor's reputation. On the other hand, a conscientious driver on the front line who takes pride in getting orders delivered on time can be a tremendous asset to a distributor.

Now let's meet some of the key employees who work in the office at an electrical distributor. The manufacturer's field salesperson or an independent manufacturer's rep wants to meet the purchasing agent first, because he or she buys the products that the distributor stocks. It's their job to be on top of current product pricing in the market and manufacturers' special purchasing arrangements. If a distributor belongs to a buying/marketing group, that purchasing agent will take direction from company management on which vendors from which to buy.

Buying/marketing groups wield tremendous power in the electrical industry. They enable distributors to pool their purchasing power so they get volume discounts or rebates based on annual purchases from participating manufacturers. In addition, the buying/marketing groups help members improve their marketing and management skills by providing opportunities to network with non-competing distributors and to learn about these topics from top-flight instructors.

Just a shout down the hall from the purchasing department you will find the inside salespeople, who take orders over the telephone, by e-mail and fax. They provide customers with answers to technical or application questions and update them on order status. Many distributors team an inside salesperson with a field salesperson. In this arrangement, the inside salesperson handles the nitty-gritty details of order tracking and much of the related paperwork, while the field salesperson focuses on finding new business. In another common arrangement, inside salespeople specialize in certain product areas such as lighting, motor control or wire and cable.

Inside salespeople play an increasingly valuable role at electrical distributorships. Along with their traditional duties, more often than in the past, they have become a customer's first call and primary contact. That's because computer technology has given the inside sales force 24/7 electronic access to virtually all the information on product specifications, pricing, ordering and delivery that they need to complete a sale. While field salespeople will continue to be a valuable resource for customers who need or want in-person visits from a salesperson, don't be surprised in the future if you see more end users relying on inside salespeople as their main resource.

You may also meet telemarketers, or telephone sales personnel. They spend much of their time making cold calls to potential accounts to introduce them to the distributorship's package of products and services or servicing accounts that don't buy that frequently from the company, and really don't need a salesperson calling on them in-person.

If a distributor's outside salespeople are doing their jobs when you visit, you won't find them at their desks in the office — they will be out in the field calling on customers. The role of the field salesperson at a distributorship is changing fast because of new and increased customer expectations and technology. Gone are the days when a distributor's salesperson could get an order just by showing up with the gift of gab, a good shoeshine, a firm handshake and a box of donuts. Few customers these days have the time for small talk, and more often than not they don't even want to see a distributor's salesperson unless he or she can provide a solution to a problem.

The world of text messaging, Blackberries, e-mail, pagers and laptops has also changed life for distributors' salespeople. Customers may not want to see salespeople as often as in the past, but when they do need answers from them, they want those answers immediately. The salesperson must remain accessible to customers 24-hours-a-day — and have the right answers when customers need them.

When a field salesperson in the electrical industry is armed with a laptop that's loaded with communications software, a contact-management database and some product application software and a wireless connection, they can operate from virtually anywhere. Laptops can help salespeople provide quick, accurate answers to customers' questions on order status and technical product applications.

Depending on the size of the distributor, you may also meet the sales manager. They work with the company's sales force to make sure they are hitting their profit and sales goals and that sales personnel have the necessary resources to sell effectively.

Not far from the sales and purchasing departments you will find the branch manager. Some distributors put their branch managers' offices near the counter area so they can greet important customers when they come into the counter.

The branch manager at an electrical supply house plays a role like the coach of a baseball team. He or she manages the players at all of the key positions, such as inside and outside sales, credit and collections, warehouse, and other types of sales support.

Whether a four-employee “twig” location fed with products and information from the company's headquarters or a monster branch with several dozen employees, the branch manager ensures that the location operates smoothly.

Some distributors also believe that as the person closest to a local market's economic cycles and customers' unique product preferences, the branch manager should decide which product lines to stock and how much inventory of those products to carry. Other companies prefer to make these decisions at headquarters. The branch manager can then focus on servicing customer needs and managing the branch personnel. Many companies offer their branch managers special incentives to keep operational costs down and to hit specific net profit and sales targets.

Credit and collections personnel are key players at a branch, too, They provide the branch manager with the vital information that he or she needs to keep the branch running profitably. Good credit managers spot the red flags at accounts before they develop into major problems.

Depending on the size of a distributor, you may or may not meet some other key employees during your visit. As a distributor grows more sophisticated in its business operations, it may invest in a marketing director. In the past, “marketing” at an electrical supply house amounted to a part-time job handled by an administrative assistant, college kid home on summer break or someone else that the boss decided had some extra time on his or her hands. Increasingly often it's a full-time position. An electrical distributor's marketing director promotes the company in the local community; organizes counter days, trade shows and other special activities; gets cooperative advertising dollars from manufacturers; does market planning; and, if the company belongs to a buying/marketing group, works with it on promotional or marketing programs.

Not all distributors may have the MIS or computer systems manager as a full-time position. In the past, distributors tended to give the job to the person at the company who seemed the most computer-literate, or to a son, daughter or other relation who had a knack for all things technical.

It's not that easy any more, particularly for a large distributor. More likely than not, the MIS manager at a large distributor maintains the computer link between branches and the main computer; monitors the usual computer crashes and other daily computer crises; keeps the sales forces' laptops on the same software releases; gets the company running on EDI; ensures that the bar coding system is working; and maintains the company's website.

Different Strokes for Different Folks

The mix of customers that a distributor pursues depends on a variety of factors, including the company's long-range strategic goals, the business potential of the various end-user customer groups in its market area and competition from other electrical distributors or alternate sources of supply.

No two electrical distributors seem to have exactly the same customer mix or market interests, but many do share some common characteristics. This quick summary outlines the most common types of full-line electrical distributors:

Contractor houses

A contractor-oriented distributor goes after electrical contractors involved in the building or retrofit of commercial, industrial and institutional facilities or in housing projects.

These distributors often live and die with large project business, and they must have a good hit rate in winning the bids that go out for quote to supply the electrical products for these projects. They all also must carry one of the electrical business' most widely accepted “gear” lines. These lines include Square D Co./Schneider Electric, Palatine, Ill.; Eaton/Cutler Hammer/Westinghouse Products, Cleveland, Ohio.; GE Distribution & Control, Plainville, Conn.; and Siemens Energy & Automation, Inc., Alpharetta, Ga.

Residentially-oriented electrical contractors, often smaller companies involved in a very cyclical business, may or may not interest distributors in this end of the market. Nationally, electrical contractors account for 36.3 percent of distributors sales, according to Electrical Wholesaling's 2008 Regional Factbook.

Few electrical supply houses focus on sales to homeowners, unless they operate a retail lighting showroom and want to sell lighting fixtures, paddle fans, lighting controls and other lighting products to homeowners or builders involved in new housing. Years ago, many electrical distributors ran lighting showrooms to service the demand for residential lighting products. Today, in part because of major competition from Home Depot and other home centers, the distributors still in the residential lighting market tend to specialize in high-end lighting and control systems that the home centers don't carry.

Industrial houses

Electrical distributors who go after the industrial market are a different breed. Some industrially-oriented electrical distributors focus just on “MRO” (maintenance, repair and operations) products such as replacement lamps, portable cords, wiring devices and other products that an industrial customer needs to keep a facility up and running. Other distributors with industrial interests get involved with more technical products such as programmable logic controllers (PLCs), variable-speed drives, power monitoring systems, industrial sensors, motor controls, machine vision systems and other high-tech products. Some go after both markets. Let's take a look at these types of industrial distributors.

MRO distributors

Many electrical distributors make a nice living by supplying factories with the replacement electrical products needed to keep their assembly lines and other facilities up and running. The most successful distributors in this end of the market build long-term relationships with customers based on their distributorship's dependable track record with the key purchasing influences at an industrial facility.

During the dot-com era, the concept of integrated-supply contracts, also called “national contracts,” “sole sourcing agreements” or “blanket contracts,” attracted lots of interest, because some people thought it could be done primarily over the Web. Some of these contracts focused solely on electrical supplies while others covered a wide array of MRO needs. Working out a deal to supply a no-surprises package of services and agreed-upon product pricing has been around for decades. It's difficult to do well, in part because of the logistics, necessary computer compatibility and simple fact that while many of these customers want to cut purchasing transaction costs by centralizing purchasing when practical, the local plants don't like to be forced to take on a new product or to deal with a new distributor when they have a good relationship with another supplier.

Different types of national account/integrated supply programs now exist, all with the goal of sewing up a Fortune 500 company's MRO supply needs for regional or national facilities. Some of the better known entities in the electrical market that go after this business are Vantage Group, Vanguard National Alliance (VNA) and SupplyForce, once part of Affiliated Distributors but an independent company since 1999, and Bruckner Supply, Port Washington, N.Y., now owned by WESCO Distribution Inc., Pittsburgh. EW has written extensively about integrated supply, national accounts and each of these entities over the years; the articles are archived at www.ewweb.com and can be found via the website's search engine.

High-tech distributors

Many industrial distributors sell automation products and systems that manage and control the processes on the factory floor. Full-line distributors that go after this market often set up a separate business unit staffed by electrical engineers with a high level of training in not only the design of power and control systems, but also in the lines of automation products the company stocks.

They compete both with other full-line electrical distributors and with automation specialists that focus only on industrial automation products. Plenty of “specialized specialists” exist, too. These companies design and sell only certain types of automation systems, such as for bar coding or machine-vision applications. To get a better idea of the role that automation specialists play in this market, visit the Web site for the Association for High Technology Distribution (AHTD), Philadelphia, at www.ahtd.org.

As with the contractor market, automation distributors are judged by the lines they keep, although these lines will depend on which part of the automation market they focus on. Some of the big names in the automation market include Allen-Bradley/Rockwell Automation, Milwaukee; Banner Engineering, Minneapolis.; Siemens; Schneider Electric; ABB Controls, Wichita Falls, Texas; and Turck, Inc., Minneapolis.

Specialized distributors

Although not as prevalent as the contractor or industrial houses, numerous electrical distributors focus on a particular customer segment, like utilities, government, commercial maintenance or mining. Others concentrate on a category of product, like lamps or wire and cable, selling it across the broad and diverse spectrum of customers served by companies in this industry. Electrical distributors' customers come from practically any walk of life or any type of business you can name.